How Much Credit Score is Needed for a Personal Loan in India?

Ideally, a minimum credit score of 700 is required to get Personal Loan approvals from most lending institutions. However, a credit score of 750 is recommended to secure your loan at  favourable terms and at affordable interest rates. 

Your credit score is one of the most important factors considered when you apply for a Personal Loan as lenders use it to calculate the risk involved in granting you a loan.
In this blog post, we will discuss how much credit score is required for a loan, why it is important, and how you can increase your credit score to get the best possible terms when applying for a Personal Loan.

What is a Credit Score and Why is it Important?

A credit score is a three-digit number, usually ranging from 300 to 900, and calculated by credit bureaus such as CIBIL, Experian, Equifax, and CRIF High Mark. It reflects your creditworthiness and repayment history. The higher your score, the more creditworthy you appear to lenders when applying for loans or credit cards.

This score is calculated using your payment history, debt, credit history length, credit mix, and the number of loan or credit card applications. When you take a loan, your credit score is used by the lender to determine two important things:

●    Whether to accept or reject your loan application.
●    The interest rate and loan terms and conditions they should offer you.

Therefore, it’s crucial to know how much credit score is needed for a loan before applying for a Personal Loan with any lending institution.

What is the Ideal Credit Score Required for a Loan?

Generally, a credit score of 750 or above is considered as excellent. Most lenders prefer a credit score of 750 or more, and borrowers with such high credit scores usually get approved for loans quickly with the best loan terms, like lower interest rates, longer tenures, and larger loan amounts.

But that does not mean you cannot get a loan with a slightly lower credit score. Depending on the lender and type of loan, even a score of 700 - 749 can sometimes make you eligible as well. However, you will most likely be charged higher interest rates and offered less favourable lending terms.

How Much Credit Score is Required for a Personal Loan?

Personal loans are unsecured loans, and you do not have to pledge any asset as collateral or security for the loan. And since there's no security for the lender in case you default on payment, lenders rely on your credit score to calculate risk.

●    Excellent (750–900): If you have a credit score of 750 to 900, you get approved for personal loans very quickly and get the best interest rates.
●    Good (700–749): If you have a credit score of 700-750, the loan will usually be approved at a higher interest rate.
●    Fair (650–699): With a credit score of below 700, it won't be easy to get approved, but also not impossible. Lenders might offer secured loans with stricter terms and conditions.
●    Poor (Below 650): A credit score below 650 is almost impossible to get approved, as lenders deem such profiles as highly risky.

If you are curious about how much credit score is needed for a Personal Loan, the answer is a minimum of 700 for easy approval, though 750 or higher will get even better terms.

Also Read:  How to Increase CIBIL Score From 600 to 750

Can You Get a Loan with a Low Credit Score?

Even though lenders generally prefer people with high credit scores, you can still get a loan with a low credit score in India. There are various financial institutions and NBFCs that provide loans to applicants with low credit scores. These loans are likely to have:

●    Higher interest rates
●    Lower loan amount
●    Co-applicants needed
●    Stricter repayment terms

Other Factors Considered by Lenders for Personal Loan Approval

Your credit score counts, but it isn’t the only factor that lenders consider. Here are some other associated factors that lenders consider:

●    Income level and stability: A stable income increases the chances of loan approval.
●    Employment type: Salaried workers with stable employers tend to have better odds of getting approved for personal loans than people with irregular income.
●    Existing debt obligations: Borrowers with significant existing debt are less likely to be approved for a new Personal Loan, as high debt levels increase credit risk.
●    Age and repayment capacity: Younger borrowers with higher earning potential are generally more likely to receive quicker approval, reflecting their stronger repayment capacity.

Tips for Improving Your Credit Score

Building a good credit history requires time, effort, and discipline. Even if your present credit score is below the acceptable level, you can raise it with time.

Here are some useful tips:

1. Pay All Bills on Time
Payment history is the most critical element while calculating your score. Pay credit card bills, EMIs, and utility bills on or before the due date. A single late payment will harm your score.

2. Use Credit Cards Less
Make your best effort to keep your credit card expenditure below 30% of the overall limit. For instance, if your credit card limit is ₹1,00,000, avoid spending more than ₹30,000. Low utilisation indicates that you do not overuse credit.

3. Avoid Applying for Loans Too Often
All loan or credit card applications result in hard inquiries by lenders. Submitting multiple applications within a short period will indicate financial stress and negatively affect your credit score. Therefore, it is advisable to apply for credit only when necessary.

4. Try to Have a Mix of Credit
Having a mix of secured credit (e.g., home or auto loans) and unsecured credit (e.g., personal loans or credit cards) indicates that you can manage all kinds of credit responsibly.

5. Close Old Loans Wisely
Don't rush to close old credit accounts and loans once you've paid them off. Try to keep a long credit history as it’s beneficial to your score, showing lenders how you've managed debt over a long time.

Also Read: Top Factors Affecting Credit Score Every Consumer Should Know

To Conclude

Your credit score is one of the most important considerations when applying for a Personal Loan. A credit score of 750+ is excellent, boosting your chances of Personal Loan approval with favourable terms, while lower scores can still get you loans but with stricter conditions.

Poonawalla Fincorp offers hassle-free personal loans of up to ₹50 Lakhs without any collateral. If you’re looking to obtain funds quickly and conveniently, apply for a Personal Loan with an excellent credit score and enjoy benefits like quick approval, affordable interest rates, flexible repayment tenure, and more.

Frequently Asked Questions

How much credit score is required for loan approval in general?
A score of 750 and above is ideal for easy approval and favourable terms, though some lenders will consider applicants with lower scores depending on income and repayment ability.

Can I get approved for a loan if my credit score is below 650?
It is very difficult to get approval for unsecured or collateral-free loans. Some lenders will still offer loans, but with stricter terms, higher interest rates, or collateral requirements.

How much credit score is needed for a loan of ₹10 Lakhs obtained for personal emergency expenses?
At least 700 is advisable, while a score of 750 or more ensures quicker approvals and lower interest rates.

Does high income compensate for a low credit score while applying for a Personal Loan?
High income will definitely improve your chances, but lenders still view credit score as a key indicator of repayment behaviour.

How long does it take to improve a credit score?
It will take several months of disciplined financial behaviour, such as timely repayments and reduced credit utilisation, to see noticeable improvement.